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19223Re: Nothing new to see here

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  • Dan Ust
    May 13, 2008
      --- On Mon, 5/12/08, quasibill <quasibill@...> wrote:

      > --- In LeftLibertarian2@yahoogroups.com, Dan Ust
      > <dan_ust@...> wrote:
      > >
      > > --- On Fri, 5/9/08, Kevin Carson
      > <free.market.anticapitalist@...>
      > wrote:
      > >
      > > > Especially interesting was the observation that a
      > low
      > > > discount rate
      > > > doesn't necessarily translate into low
      > interest rates
      > > > for ordinary
      > > > people. It's a low interest rate for those
      > standing
      > > > closest to the
      > > > Fed's money spigot.
      > >
      > > This is nothing more but Austrian Economics 101 on
      > inflation and
      > other interventions: none of these are transmitted
      > instantaneously
      > throughout an economy. The fact that such policies are
      > harmful in
      > the long run and throughout the economy, of course, goes
      > along with
      > their short run, localized benefits.
      > >
      > > Regards,
      > >
      > > Dan
      >
      > Actually, Dan, I was hoping you'd chime in on this. Is
      > there an
      > Austrian who is applying the theory to the facts on hand in
      > a
      > cohesive manner like the article cited?

      To recent trends -- meaning trend of the last year or two? There are, but these are events in progress and I'd wait a few years before having a coherent view of what's happening. Imagine a blow-by-blow reporting of World War Two -- one attempting to explain the meaning of each -- and expecting that to really get things right as they're happening. Would a reporter or commentator really guess, at the time, what explained what and which events were key and which were just so much noise in the data? (To be sure, explaining things afterward does not mean all issues are settled or that everything salient is known and recorded.)

      Even so, there are studies by Austrians that cover things like the dot-com bust -- e.g., "Does Austrian Business Cycle Theory Help Explain the Dot-Com Boom and Bust?" at:

      http://mises.org/journals/qjae/pdf/qjae6_2_3.pdf

      (Sorry, it's a PDF.)

      My point, however, was not whether Austrians or people at mises.org (see below) were explaining the current debt and inflation issues. My point was that Kevin's statement -- "It's a low interest rate for those standing closest to the Fed's money spigot." -- seemed to say that he (and perhaps many others here and elsewhere) see this as some brand new insight. It's not for nothing that Austrian economics is seen as the "economics of time and ignorance" (incidentally, the title of a decades old book on just this very subject). In fact, in their analyses of inflation, time delays are all important. This is not only why inflation causes malinvestments in production goods (actually, usually, unsustainable increases in both investment and consumption*), but also why inflationary booms do not raise all boats -- even all capital boats -- equally.

      Stephen Horwitz** and Roger Garrison***, in their respective recent works on macroeconomics, go over just this phenomenon of how inflation spreads through an economy. The people close to the inflationary "spigot" go get the benefits first. As the inflation spreads, devaluing money overall, different groups realize benefits at the expense of others, until the benefits are exhausted and consumer prices rise -- not uniformly in terms of either goods and services or timing -- and those who rely on fixed annuities and other fixed payments (think pensioners), personal savings, or stable invests realize a loss.

      The general problem of inflationary policy is that there are such initial benefits and that the problems, real and serious, don't appear until much later -- some times, in a big way, only years later. Were these initial benefits not forthcoming, no one would bother to advocate inflation. Naturally, one would expect those who might benefit the most from inflationary policies -- actual or potential big debtors, including the government itself, those paid directly by government subsidy (think public works), and large investors and large banks -- would find them to their liking and be most likely to talk up the benefits while talking down the costs.

      > The Mises crew

      I take it you mean mises.org. Though they are perhaps the loudest spokesgroup for Austrian economics, they are not equivalent to the school or the idea.

      > has a few
      > that seem to have a passing interest and recognize that
      > "mal-
      > investment" can be "over-investment", but I
      > haven't caught many
      > propounding detailed, cohesive descriptions of current
      > events.

      See above. I think it's coming out in drips and drabs, such as some recent analyses of the mortgage finance issues.

      > From
      > past comments, IIRC, you had knowledge of non-Mises
      > austrians who
      > specialized in ABCT - I'm really curious if they're
      > trying to apply
      > their insights to current events.

      I'm not sure they're non-Mises. What do you mean by that term? Mises was the seminal thinker of modern Austrians, so I think all Austrians owe some debt to him. This doesn't mean anyone fancying Austrian economics must pay homage and agree with every sentence Mises scribbled.

      > Interestingly enough, Reisman had a pretty decent post
      > there a couple
      > of months back on the economy. Had a few of his well-known
      > blind-
      > spots (like pining for a gold-standard instead of a free
      > market in
      > currency), but pretty good, nonetheless.

      That always bothers me too: his being a gold bug, but not realizing the problem is not lack of a gold standard, but government meddling in money at all. And all his talk about how to implement a gold stanard is an excellent soporific. We really only need one thing -- and it will probably be immediately painful: to get government out of money and banking (and, of course, everything else, but starting with legal tender laws would probably be an easier sell for the general populace than full anarchism).

      > I'd appreciate it if you could point me in the right
      > direction.

      I don't know about right, but just the direction that I think is better than the usual bash Mises one or "be ignorant of ABCT and Austrian economics and then act like someone repeating an Austrian commonplace is boldly discovering new knowledge." :)

      Regards,

      Dan

      * One of the mises.org MP3s had a good example illustrating this via a Soviet central planner. Here's what I recall. Imagine, instead of money, the central planner uses loyal party bureaucrat Ivan to gauge projects before putting them into play. The central planner asks Ivan if they are enough bricks, mortar, wood, nails, etc. to build lots of homes for the proletariat. Ivan inflates his numbers -- there is actually only enough to build five houses, but he pads the numbers as if there were enough to build seven houses. Construction starts and no allowances are made, because Ivan is trusted, for shoftfalls. So, consumption continues at the usual rate or maybe a higher rate because things look so good. Eventually, everyone, including the central planner, notices that the seven houses can't be built. There simply aren't enough bricks, etc. (I reckon, in the real world, Ivan would be purged -- or some scapegoat found, such as marketeers,
      counter-revolutionaries, or sabotuers.:) In fact, not only can seven homes not be completed, but in order to completing any homes, a few of the partly built ones must be taken apart at high expense. Instead of only five homes, only three can be completed and consumption may have to fall to make up the difference.

      Anyhow, I thought it was an interesting analogy -- if a bit simple.

      ** See my review of his _Microfoundations and Macroeconomics: An Austrian Perspective_ at:

      http://mars.superlink.net/~neptune/Macro.html

      *** _Time and Money: The Macroeconomics of Capital Structure_
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